Most Canadians do not get particularly exercised about agricultural supply management. To many observers, it seems obscure and abstract. But as recent events at the G-20 Summit in Los Cabos, Mexico demonstrate, the issue has important real-world ramifications for this country.

Supply management is becoming a painful obstacle to opening international markets for Canadian goods and services, at a time when trade liberalization is a vital part of the government’s economic strategy. Moreover, Canada is paying a high price at the trade negotiation table to protect a policy that, in effect, taxes low-income Canadians and transfers the money to a handful of relatively well-off farmers. It’s time for a reset.

What is “supply management”? It is a government scheme to raise agricultural prices and farm incomes by a strictly enforced system of licences and quotas that controls who may produce a handful of important commodities, such as milk, cheese, poultry and eggs, and how much they may produce. High tariffs also are imposed on imports of these commodities. By thus controlling both domestic and foreign supply, supply management increases the price of covered commodities. Thus do we repel potential trade partners who would like to sell those commodities to Canadians at competitive prices.

That’s exactly why Canada agonized in Los Cabos over U.S. president Barack Obama’s invitation to join negotiations for the Trans-Pacific Partnership (TPP). Our system of supply management is not acceptable to many of that trade club’s members; and while we may now be at the negotiating table, we are not in the TPP yet.

Canada is a trading nation, and joining the TPP would give us access to the fastest growing markets in the global economy. The TPP originated in 2005 with Brunei, Singapore, New Zealand and Chile. Australia, Peru, Vietnam, Malaysia, the United States, Japan and others including China may join in due course. It may well be one of the most important trade blocs in the 21st Century.

The sheer size of the countries involved represents a real opportunity for Canada to expand its opportunities for trade. If all the potential members join the TPP, it will represent $35.2-trillion in GDP and 2.7 billion people.

Many observers argue that Canada must open trade opportunities with these countries to diversify our trade and gain greater access to faster growing regions to counter-balance slow growth in the United States and Europe.

Finally, the entry of Mexico and the United States into the TPP would in many ways effectively modernize our now dated NAFTA agreement with those two countries. Canada’s interest in being part of what could well become a super-NAFTA is obvious and overwhelming.

Yet some of our closest friends, particularly New Zealand and Australia, have adamantly opposed Canada’s TPP membership unless we eliminate supply management. This is understandable, given the wrenching reforms these two countries undertook to eliminate similar programs in their own jurisdictions. We may well have to choose between TPP and supply management.

What’s at stake? Forgoing membership in the TPP to protect supply management would endanger broad economic prosperity, including job creation, investment and business development in order to keep a program that benefits just a few farmers.

Do supply management’s domestic benefits outweigh its obstruction of trade?

On the contrary, its domestic costs are high, and are borne disproportionately by low-income Canadians.

The lower a household’s income, the higher the share of their income that goes to food. In fact, lower income households spend nearly a quarter of their income on food compared to middle- and upper-income Canadians, who normally spend 5% to 10% of their income on that category.

Just as supply management disproportionately burdens lower-income families, eliminating it and lowering prices for basic food goods disproportionately benefits lower-income families. They would immediately have more disposable income for other necessities, thus increasing their standard of living.

The emerging realization that supply management also is blocking Canada’s entry into a new trade bloc that could help enrich all Canadians, provides an additional powerful reason — and, one hopes, the political will — to finally reform this obsolete element of Canadian policy.

National Post

Brian Lee Crowley and Jason Clemens are the editors of the Macdonald-Laurier Institute’s recently released collected essays, Milking the System: How Agricultural Supply Management Impedes Trade Opportunities and Egregiously Transfers Income. Available at macdonaldlaurier.ca.